Jury finds manufactured home giant liable for fraud in South Texas case

CORPUS CHRISTI - A federal jury on Thursday found one of the nation's largest mobile homebuilders liable for civil racketeering and fraud in a South Texas case.

After a weeklong trial, the company was found liable for collecting payments on a home for four years after it filed a release of the lien on the home, said David Rumley, attorney for the plaintiffs. Vanderbilt Mortgage, the financing arm of Clayton Homes, was ordered to repay $30,000 in payments made by the homeowners and $600,000 in exemplary damages.

The company filed the release in 2005 after it settled a round of lawsuits alleging the homebuyers' paperwork were fraudulently notarized.

Rumley said the case could affect hundreds of other homeowners who are in similar situations.

"The significance of that is there's hundreds of people out there in 13 counties in South Texas where releases have been filed and they have no idea," Rumley said.

Clayton Homes attorney Jorge Rangel said the company plans to fight the verdict.

"We are very surprised and disappointed by the verdict," Rangel said. "We intend to seek appropriate review by the courts and to ask that the jury's findings be set aside."

The jury found the Knoxville, Tenn., company engaged in unfair debt collection practices, committed common law fraud and violated fraudulent lien statute laws. It also found the company in violation of the Racketeer Influenced Corrupt Organizations Act, better known as RICO. The exemplary damages were awarded for unfair debt collection and fraud.

The case started when Vanderbilt Mortgage, the financing arm of Clayton Homes, sued in 2009 to foreclose on a mobile home bought by Cesar Flores and Alvin King of Jim Wells County. They had bought the home for $73,600 in 2002.

Flores' and King's attorneys found a release of the lien filed with the county clerk in 2005 without the homeowners' knowledge.

The attorneys traveled to county courthouses around South Texas and found hundreds of such releases filed in 13 counties including Nueces, Refugio, San Patricio, Jim Wells and Kleberg, according to court documents and Rumley. All were filed around the same time in 2005.

Four other cases have been filed in what is the second round of South Texas suits against Clayton Homes. In the first round, the Wingington Rumley Dunn law firm in Corpus Christi and the Gutierrez Law Firm in Alice filed about 50 cases throughout 2004 and 2005 in Jim Wells, Duval, Brooks and Nueces counties.

Those suits alleging paperwork was notarized fraudulently were settled in September 2005, though the attorneys later found more cases that were settled before filing.

The new round of suits filed earlier this year allege that the company continued to collect mortgage payments for five years, after filing documents in 2005 releasing homeowners from those fraudulent mortgages. The other cases are set to go to trial next year, Rumley said.

The lawsuits allege that the releases mean homeowners no longer should have to pay their mortgages. The company says the releases apply only to the land and not to mortgages.

Clayton Homes is what is known as a vertically integrated company — it manufactures, sells, finances and insures mobile homes. Founded near Knoxville in 1934, it has won numerous industry awards and last year unveiled a much-talked-about, sustainable i-house.